Binance takes a liking to Russian clients as if they were family

Last week, Bloomberg reported that the US Department of Justice is reviewing Binance to circumvent anti-Russian sanctions. According to the agency, the investigation, led by the department’s national security department, should reveal whether the company or its employees violated the restrictions imposed against Russia after the start of the “special operation” * in Ukraine.

This check is added to a number of other claims that the US authorities are making against Binance. What is their essence and what will the conflict between the crypto exchange and the US authorities lead to?

Derivative claims

In March of this year, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against the company, in which it accused the exchange itself, its founder Changpeng Zhao, and former compliance director Samuel Lim of knowingly allowing Americans to trade cryptocurrency derivatives, while Binance does not have the appropriate license. This, according to the CFTC, is a gross violation of US law. In addition, the lawsuit alleges that Binance helped large US clients circumvent their own compliance procedures, thereby violating money laundering law and the “know your customer” rule. The details of the investigation are not yet known.

Most of the experts interviewed by Forbes believe that all the claims of the US authorities against Binance are interconnected. The investigation into the company’s compliance with anti-Russian sanctions is part of the systemic work of the American regulator not only against a specific exchange, but also in relation to the crypto industry as a whole, says Viktor Pershikov, a cryptocurrency market analyst, a trader who manages digital assets and a well-known cryptocurrency analyst.

Yulia Privalova, director of the DRC legal department, agrees with him, who believes that the American authorities “have two enemies in one platform” – both Binance and Russian citizens.

The claims of the American authorities to Binance have several reasons, explains Pershikov. First, he recalls, the United States accuses the exchange of providing services to citizens of the country illegally: despite the presence of the American division of BinanceUS, the bulk of trading takes place in the offshore structure of the exchange, and the regulator assumes that US citizens are not served by the local subsidiary of Binance.

In addition, the exchange is associated with the Chinese Communist Party and is generally viewed as a business with Chinese beneficiaries, Pershikov continues. Against the background of the ongoing economic confrontation between the US and China, this also forms a negative attitude towards Binance. And, finally, after the collapse of the FTX exchange, the US authorities intend to completely eradicate the unregulated crypto services market in the country. Therefore, a number of projects, in addition to Binance, faced claims from local authorities. This is done, according to Pershikov, to reduce the role of crypto-businesses in the United States, protect investors, and also “clear” the field for the further launch of Central Bank Digital Currency (CBDC) in the country.

Sanctions claims

Other large crypto exchanges registered directly in the United States and dominating in this country completely stopped working with Russian clients, while Binance did not, recalls Yury Brisov, partner at D&A Partners. For example, Kraken closed access to users from Russia in October last year.

Therefore, it is not surprising that the US Department of Justice decided to check whether the platform violates anti-Russian sanctions, Brisov said.

The fact that the platform will not block the accounts of Russians was announced in Binance back in February last year by CNBC. “At Binance, we believe that everyone has the right to earn, hold, spend and send their funds, no matter who you are and where you come from,” the website of the world’s largest crypto exchange still says.

The company emphasized that the cryptocurrency is intended to provide financial freedom to people around the world and a ban on the use of the platform would be contrary to “the very essence of the existence of cryptography.” The company promised to block access to the exchange to individuals and companies included in the sanctions lists, and further restrictions will be possible only if sanctions are expanded.

The sanctions have been expanded several times, and in March last year, Binance announced that it would stop accepting Mastercard and Visa cards issued in Russia, and in April, as part of the fifth package of EU sanctions, it introduced restrictions on the maximum value of assets on the balance of a crypto wallet for Russian citizens – the limit was €10,000 .

In October, the EU authorities introduced new restrictive measures that imply a complete ban on opening crypto accounts, crypto wallets and cryptocurrency storage services for Russians, but Binance is still available to Russian users. At the same time, in March 2023, the company closed the possibility for Russians to buy and sell dollars and euros through its p2p service, explaining this measure by the introduction of the tenth package of EU sanctions against Russia. Russians use p2p services as an alternative to SWIFT to withdraw money abroad.

Binance vs USA

In April of this year, Binance unexpectedly removed the limit for Russians on a trading account of €10,000, a Forbes correspondent was told in the exchange’s support service. At the same time, the platform’s press service emphasized that “all current restrictions related to sanctions against Russian citizens are applied by the platform and its legal entities in the European Union in full.” Additionally, the removal of the limit was not commented on there. The ban on withdrawals in dollars and euros for Russians who do not have the right to live in Europe remains.

Yulia Privalova, director of the legal department at DRC, does not rule out that in the event of bypassing anti-Russian sanctions, Binance could use the same methods that were described by the CFTC in a lawsuit against the company. For example, it stated that the Binance support team “teaches people how to get around sanctions,” Privalova recalls.

In a Secret Chat chat with Signal, Samuel Lim allegedly admitted that the exchange is asking US customers to use a VPN as well as provide non-US documents. In practice, Binance is quite loyal to the provision of foreign documents that are easy to obtain, for example, a driver’s license from another country, says Privalova.

In addition, almost immediately after the €10,000 limit was lifted, some media reported that Binance allowed deposits using Visa, Mastercard and other bank cards issued in Russia. A Forbes correspondent was told by the support team that this option is still not available. However, one of the Russian clients of the exchange told Forbes that users of the platform can carry out transactions between themselves through cards of sanctioned banks, for example, Sberbank and Tinkoff, as well as Visa and Mastercard cards.

If the US Department of Justice can prove that Binance really circumvented anti-Russian sanctions, this will have serious consequences for the exchange, Viktor Pershikov states. The platform will face pressure that could complicate the operation of the project, the expert warns, up to the closure of the accounts of Binance subsidiaries and the revocation of licenses in regions friendly to the American law enforcement system.

In addition, the negative news background around the exchange will inevitably lead to an outflow of clients who are afraid for their assets, which will negatively affect the financial condition of the project. This situation is unlikely to lead to the collapse of Binance, but it will add negativity to both the project itself and the cryptocurrency market as a whole, Pershikov concludes.

Overall, the lawsuit between Binance and the CFTC could affect market liquidity, according to Crypto is Macro Now newsletter author Noel Acheson. According to him, if marketplaces refuse to trade on the exchange and it is forced to stop working in the United States, this will lead to a decrease in liquidity on the site. This, in turn, will increase currency fluctuations and scare the big players away from the crypto industry for a while.

Binance declined to comment for Forbes on an investigation into the circumvention of anti-Russian sanctions.

What can the Russians expect?

Yuri Brisov, D&A Partners partner, does not expect Binance to impose additional restrictions on Russian clients in the hope of improving relations with the US authorities. The exchange initially made it clear that it would not turn its back on Russian clients. Privalova agrees with him.

After the suit of the American regulator, the exchange was already left without the American market and under the threat of multimillion-dollar fines, she says. To lose also the Russian market, when, due to the inability to use Russian cards abroad, the exchange, according to Privalova, “even housewives use”, Binance simply cannot afford.

According to the head of the Bitbanker platform, Sergey Gorshunov, Russia accounts for about 5% of Binance traffic, and together with other Russian-speaking countries, about 10%. In total, according to its own data, 120 million users are registered on the platform.

If the US authorities can prove that the exchange violated sanctions, this will hardly affect Russian clients, says Viktor Pershikov. The easing of requirements for Russian citizens, for example, the abolition of the limit on holding assets, suggests that, legally, Binance was able to build a structure that allows Russians to work with almost no restrictions.

Obviously, this structure does not belong to American or European jurisdiction, so it will be able to continue working even in the event of a “ban” in the United States. The only question will be whether Russian crypto investors themselves want to use the services of the exchange, which is under pressure from the American authorities, the expert notes.

In addition, in addition to Binance, a number of other crypto exchanges remain available for Russians that are not registered in the European Union or the United States and have not imposed any restrictions, including on withdrawing funds abroad. Among them, for example, OKX and KuCoin registered in the Seychelles. Experts interviewed by Forbes believe that other exchanges will not impose restrictions on Russians amid checks on Binance. According to Yulia Privalova, they will resist to the last and try to circumvent the sanctions. In the case of sanctions against Binance, they will not only not limit the Russians, but will only be happy if they go over to them, Viktor Pershikov adds.